PG Bank mulls bank-in-bank merger with VietinBank

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Late last week, Petrolimex Global Joint Stock Commercial Bank (PG Bank) surprised everyone when it unveiled the documents from its 2014 general shareholder meeting on its website.

The documents showed that the Board of Directors wanted shareholders to approve PG Bank’s restructuring plan to merge with Vietnam Bank for Industry and Trade (Vietinbank) through a stock swap.

The proposed value ratio was 0.82 of a share of PG Bank stock for 1 share of Vietinbank stock, which would allow Vietinbank to hold a 99 per cent stake in the former.

After the merger, PG Bank would still remain a banking entity under the bank-in-bank model.

But only a few hours after the documents went up, they were removed and PG Bank chairman Bui Ngoc Bao told VIR that the merger plans were only a proposal as of this time.

“Following the prime minister and State Bank of Vietnam’s instructions, our bank has worked on a full range of restructuring plans, including self-restructuring and merging with state or joint stock banks. Merging with VietinBank is included in that list and we have also met with a number of other potential partners. We have yet to reach a final decision,” explained Bao.

Bao asserted that PG Bank wanted to team up with a suitable credit institution and the move would take place this year if it gets the go-ahead from the central bank (SBV).

PG Bank is reportedly facing mounting pressures from its major shareholder Vietnam National Petroleum Import Export Corporation (Petrolimex) to facilitate withdrawal of its 40 per cent stake in the bank as the prime minister has required the firm to reduce its position to at least 20 per cent by 2015.

The bank-in-bank proposal with VietinBank would dilute Petrolimex’s shares to the point where it would no longer need to divest.

Discussing the merger scenario, former SBV governor Cao Si Kiem said the bank-in-bank model was virtually non-existent in Vietnam and therefore “unfeasible and hardly manageable”. 

On the same topic, a joint stock commercial bank leader said the idea to merge PG Bank with VietinBank was a viable option, but retaining PG Bank brand was unnecessary as this was not a strong brand.

Director of the Bank for Investment and Development of Vietnam (BIDV)’s training centre Can Van Luc said the bank-in-bank model has occurred in the US, as a brand solution.

“This model makes the smaller bank part of the larger and of course the larger bank will have its methods for integrating the workforce and assets of the smaller entity. If PG Bank was to merge with Vietinbank, the decision to keep the brand would be made after reviewing the pros and cons,” he added.

“The government has demanded state groups and businesses divest entirely from non-core businesses, and therefore Petrolimex is anxious to exit PG Bank, even if PG Bank is allowed to merge with VietinBank,” Luc noted.

According to PG bank figures, by end of the third quarter of 2013, the bank had over 9 per cent in bad debts while credit contracted 5.6 per cent.

By the end of 2013, through selling bad debts to state-owned Vietnam Asset Management Company (VAMC), bad debts fell to nearly 3 per cent but credit only grew 0.6 per cent.

The bank’s post-tax profit last year hit only VND38 billion ($1.8 million), down 84 per cent on-year.